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Student loan deferments encourage uneconomic decisions

Erika at Apartment 401 has an interesting comment about student loan deferments and graduate school. She says, "For smart students with undergraduate debt, graduate school is an attractive means of deferring student loan payments until their salary increases, instead of trying to work one's way up the career ladder making $400 a month debt payments in addition to rent and other living expenses."

When you add in the student loan deferments to the stipend one gets for attending a PhD program, it winds up being a pretty compelling choice for someone who is having trouble finding a job that pays more than $20,000 a year. If getting a PhD essentially pays the same as working at a crappy clerical job, why not go for the PhD?

I was able to defer those hated student loans while I attended the evening MBA program at ASU. Between the partial tuition reimbursement that my employer gave me, and the money I saved on the interest free student loan deferments (around $500 a month), I actually increased my disposable income by attending the MBA program.

Erika, however, is just a little inside an ivory tower when she writes, "As more and more students graduate with high student loan payments, I imagine that student loan payments will become an increasing factor in college major and career choice, as these students opt out of careers where the compensation at the bottom of the ladder is low."

Probably, in Erika's PhD crowd, a lot of peope went to college because they were interested in the subject matter they were studying. I too found this to be the case at the University of Pennsylvania (which is a private Ivy League school for those who are confused by the state school-like name). But in the real world of state schools, the overwhelming majority of college students are only in it because they think the college education will help them make more money. So majoring in something that will lead to a what they imagine to be a high paying career is their number one consideration, regardless of whether or not they are borrowing money to help finance the degree.

I've blogged before about student loans:

Stop the student loan madness 5/3/2004
Student loan rip-off 10/22/2003

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It just occurred to me that we let 18 year olds choose their college major, a choice that will potentially impact the entire future course of their lives. Yet the very same 18 year olds are considered too immature to choose to drink a beer.

posted Saturday, June 05, 2004